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Basics of Annuities

What exactly is an Annuity?

An annuity is an investment product that provides safe, tax-deferred growth of your money. Fixed Annuities are considered low-risk, and can provide a lump sum or guaranteed, monthly income when you retire. There are many types of annuities with varying features & benefits. These include: fixed, variable, immediate, Fixed Index and Multi Year Guaranteed (MYG). We strongly suggest you consult with a financial professional to help you understand the various types of annuities before you purchase.

Is a Fixed Annuity Right for You?

Fixed Annuities are NOT a good fit for everyone. Fixed Annuities are designed for people looking for a guaranteed rate of return – They are NOT a high-risk / high-return investments. They are considered to be conservative Investments- They have become quite popular given the current conditions of the stock market. In the year 2016, over $225 billion in annuities have been purchased.

Fixed Annuities

A Fixed Annuity will return your principal and a certain guaranteed return over a specific period of time. If you know you will retire at a certain date and have known expenses, this may be a good option for you. A fixed annuity credits interest on the premiums paid in the contract, less any applicable charges. Fixed annuities also include a guaranteed minimum interest rate – the lowest rate the annuity can earn.

Multi Year Guaranteed Annuities

Multi-Year Guarantee Annuities (MYGAs), also known as Fixed Rate or CD-type Annuities, are a type of fixed annuity that provide a per-determined and contractually guaranteed interest rate for a specified period of time, most commonly 3-10 years. For this reason, they are often compared to Bank CD’s. They typically offer higher interest rates than Bank CD’s for the same term. Your Principal is guaranteed and free from stock market conditions for the life of the contract.

Variable Annuities

A variable annuity is a contract where the premium is invested into variable sub-accounts which are subject to stock market conditions, as opposed to a fixed interest annuity which is part of the General Account of the insurance carrier and not subject to stock market conditions. Variable annuities are subject to the performance of the variable sub-accounts you choose and investment performance is NOT guaranteed.

Immediate Annuities

An Immediate Annuity pays a stream of income immediately after it’s purchased or for a set period later. A person who has already retired may find this a useful way to safely increase spending to cover daily living expenses.

Fixed-Index Annuity

A Fixed-Indexed Annuity is a type of deferred annuity that credits interest based on the performance of a particular stock market index such as the S&P 500. Fixed-indexed annuities are said to give you the best of both worlds. Interest is credited when your index increases in value, but the interest rate is guaranteed never to be less than zero even if your index goes down. Your principal is always guaranteed and all interest earned is protected as well. There are various crediting methods you can choose from such as point to point, spread and participation rate.

Helpful Questions

We’ve provided some questions in order to determine what solution best fits your needs.

  • Age?
  • Annual income?
  • Financial situation and needs, including the financial resources used for the funding of the annuity?
  • Financial experience?
  • Financial objectives?
  • Intended use of the annuity?
  • Financial time horizon?
  • Existing assets, including investment and life insurance holdings?
  • Liquidity needs?
  • Liquid net worth?
  • Risk tolerance?
  • Tax status?

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